Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. Hey friends. Hello everybody. Welcome to another Saturday edition of the BHBHMoney Show. On YouTube only. Yeah, only on YouTube today. So that's kind of a new track, new direction that we're going in. Most importantly, we have Michelle back in studio today. Most know, some know, that Michelle's been dealing with a bit of an illness. So without going into much detail, I can just say that nothing that required hospitalization or anything like that, but she just... she has moments where she has um an urgent need to be somewhere else well and it's i've been felt like back to normal last week so i told jim i said if you want me on here then just let me know before and i will be ready and no it's not morning sickness she's not pregnant for those of you i remember my mom saying things like that she's like that would be immaculate conception and i could probably go after the people that made sure that i don't say that don't say that because that means you've never had sex so no i mean this is see these saturday shows are going to get a little more interesting so we can move on to our subject um so here we're today we're here to talk about um aging inventory and we're kind of framing a discussion that's going to kind of continue into our week ahead And I think there's just a whole lot of interesting angles on this. This is something that, you know, it may help for our listeners who are not as familiar with our work is that I was in the retail and sporting goods business before I ever got in the retail car business. I became a salesperson, a sales manager in the middle nineties, stepped into buy here, pay here management in the late nineties. but prior to that i mean i owned a retail sporting goods business when i was in my twenties and so there's some stories that i'm going to tell today as it relates to inventory and specifically inventory turn that are going to be relevant um you know i've got some questions teed up to kind of help us think about this whole subject of inventory and you know our title on some of this stuff was um when does inventory quit becoming an asset and start becoming a liability and to our accountants out there we know it doesn't actually change it's still on the balance sheet it's still listed as an asset but i mean when you talk to dealers they're like look at all that cash on the lot and it's like that's money that's money tied up and and so i think you know liability is just simply a way to think about at what point is it costing us more than it's earning us is maybe the simplest way to think about that and obviously aged inventory that's not selling is just um is just simply tied up cash it's tied up yeah and we're just like Wrapping up tax refund season. And so usually dealers will have like a lot of inventory on their lot during, you know, that period of time that they've been building up for months. I mean, I've, I've talked to dealers, they start at November, you know, and they're building up their inventory so that they can be ready for tax season. And so tax season is like, kind of it's winding down. I don't know if it's completely done, but there's still be some refunds out there, but I mean, officially we're not supposed to, we don't have a due date until next week for taxes, but we know most of our customers are like right Johnny on the spot because most of our dealers customers, most of our dealers customers, because that's, that's an important influx of money for them for the year. You know, they're coming off of Christmas. They're coming off of, um a time that there's more going out than than the rest of the year so and i put out a poll in facebook and it um it kind of stirred up some uh some dialogue some conversation that kind of ties into what we're talking about here because they started some of them started asking the question well there's a lot of variables and i'm saying what i'm really trying to drive down here to is i've had dealers tell me over the years um our sales are low Our sales are slow, but our inventory is low. So you can hear from that. What they're saying is if they had more inventory, they should have more sales. So there's a point there. You have to figure out what would be an optimum inventory level. So you think about that in that context. Excuse me just a minute. So when you think about it in that context, it's like, At what point do we have enough inventory? So let me pause and tell a story about a dealer that I've worked with. I've told this story on our podcast in the past, but I think it's the best indicator of something that I want to form as sort of the basis for our conversation throughout the week here, because it's an example of... kind of the lens that I see inventory in these kind of assets through. So there's a dealer that I used to work with that had a smallish inventory. I mean, let's define that. Like you would have two sales locations and small inventory at each location. So when I say small, you're talking about, they typically close the month with units for sale on the ground, somewhere between ten units and fifteen units per location. Okay. Yeah. And so you're talking about an inventory between two stores available for sale at twenty, twenty five units query. I mean, I don't know if this is relevant or not, but how many can they fit on their lot? I'm Irish twice that I don't know if I ever saw the second about it. So it's not like it's a lot that can fit a hundred cars and you're down to fifteen. It's where they because they don't they I think I know who you're talking about. And they would turn their inventory two or three times a month. But uh yeah so certainly at a minimum they were well i just remember their volume was very consistently ninety to a hundred sales a month out of those two small inventories combined yeah okay so i think it's important to frame it that way and think about so that doesn't mean that the dealer didn't also own other inventory in their pipeline so you would also have to evaluate those assets that are in the pipeline and dollars and capital tied up in the pipeline But as far as the selling machine, the sales team only has this small inventory to sell from. The customers only have this much inventory to choose from, right? And that's all that would probably be promoted online. But there's a whole lot to explain, a whole different subject in terms of how they succeeded at that. But I think if we just use that as a measuring stick. And then I've got another story about a guy who, i met years ago i don't think you've ever heard me tell this story but i um back when i was in the retail business before i was ever in the car business i was introduced to a guy one of my uncles introduced me to a gentleman who's very successful in the southeast in furniture and he just wanted me to meet the guy's business guy i was a young business guy at that point he he thought the guy might serve as a good mentor for me and it turned out to be an embarrassing story for me because i was talking to him and he he kind of asked me said How do you do with inventory turning? I said, I think we're pretty good. We turn our inventory about two, two and a half times a year. A what? Two to two and a half times a year on a retail business. You could tell he didn't want to offend me, but he said, I built my business turning inventory twelve times a year. And he was in the furniture business. So for people to understand the math there, what he's basically saying is if I have a one hundred sofa inventory, I'm selling about twelve hundred sofas a year. OK, so that means you just think about that, the rate at which the inventory turns over. Right. That's that's the math that we're really talking about. And so I think that's the part that, and look, you can get tangled up in measuring this based on number of units or dollars. I think let's not get too bogged down in all that. But really trying to emphasize here and really question is where does it start to become a liability when it becomes a non-performing asset? So the other thing that I've heard over the years, Michelle, is that- you hear dealers say that yeah so let's break it down it's like i've watched um vehicles on a lot that are like that is a specialty vehicle or it's something it's eye candy or it's whatever and and i don't for me if it sells and if i'm a buyer payer at least your payer dealer whatever it is if it's an exotic car or a you know a ford fusion like it just for me it's a math question a sales volume it's optimization of inventory and assets question and so when we say there's an ask for a receipt generally the context where i hear that is dealers say well somebody will eventually come along and buy that okay is that the way you interpret that yeah yes absolutely yeah and so that's at least early on in my career when i was meeting dealers that was the the way they used the phrase was that somebody will buy that car i just need to wait and so this is my premise is really yeah there may be a an ass for every seat but some asses are more expensive than others if you wait on them then that unit is sitting there tying up cash tying up asphalt and uh to me that's that's the question and the thing that we're trying to drill down to is At what price do we wait for that? I think this starts to lead to questions about policy and disposing of aged inventory. That was like, what is your definition of aged? Because from what I understand, the day after you've bought the vehicle, it starts to age. And so, you know, just based on your experience, what is I don't know if I'm totally taking you off track, but like what is a good age that it's like if your inventory is all under X. that's that's a good that's a big question i'll i'll start you with an answer like i don't want to so if i'm working with a dealer often my my when i'm easing them into this adjustment because we work with dealers sometimes that have inventory with hundreds of days in inventory sometimes you know full year whatever And so when I'm starting with that, I'll typically ease them into a policy that says, can we make a policy to liquidate inventory that is over ninety days? For me, I would target something shorter than that. In my own experience as a dealer, we definitely turned our inventory much faster than that. But when you're starting dealers with this sort of approach, you have to kind of get them comfortable with the process of what it's going to look like to turn loose of inventory that's aging. So let's stop and break that down a little bit like. If a car has aged, let's just pick ninety days for a policy. I'm going to decide that ninety days is going to become my policy and I'm going to start moving cars out at ninety days. And we might look at a car that is clean. It drives perfectly. It's summertime and the air is cold. And you know how hard that inventory is to come by. And you do not really want to turn loose of that. Okay. And I get it, but we have to ask ourselves as dealers, how much of our decision to hang on to that unit is driven by emotion and not good financial sense. Because in my belief, and this is a hard thing for a lot of dealers, and even before I was a dealer in the retail side, It's a hard thing sometimes to let go of because we get in our own mind, we get sort of, sort of married to, if you will, this idea that this car is nice, it's going to sell. And we're, we may be, maybe a little proud of it. There is frequently a lot of emotion tied up with your inventory. It's like, I won't put that or I, you know, I'll only do this or look at that beauty or whatever. Yeah. There's a lot of emotion. But here's, here's my point. If, And another way to say this, maybe so I don't forget to share this is I've jokingly told dealers in the past is, you know, I'm my own practice and my what I suggest to dealers is we don't we don't buy cars to hold down the asphalt. They're there to sell. They're there to be sold. That is the business that we're in is moving inventory and keeping it through. And so so we basically need to be prepared to let it go. So back to this example of if a car hits ninety one days. it shouldn't matter if it's clean it doesn't matter if the color is wrong or right it doesn't matter if it drives well it doesn't matter the point is If you look at your inventory and the amount of cars that have turned in the last ninety days, that says that car that reached ninety one days was passed over quite a bit in the last ninety days. That's the part we have to get comfortable with is that car really should just go away. And that's hard for dealers to adjust to a lot of times. But it's like when we can develop the practice. of letting that car move on through. And so we haven't mentioned yet that we're doing a workshop where we will dive into the math. Oh, good. Okay, good. And I think I've got the link here where I can share it so folks can get in there and get registered for this thing. We've got a workshop on Thursday afternoon. that will dive into all this and we've got a tool that's being created for that purpose so that we can analyze these things and give you good math on what is the benefit to me. If I would decide to liquidate some of this inventory, for example, and put it back into fresh units, what could that mean to me in terms of the math? And there's a tool involved, too, so that you can run your specific. And we'll be able to share that tool with dealers so that the attendees will get the access to the tool and they can run their own math. But we're going to walk them through kind of how that calculation can work and what the benefit can be from them for making a decision to. start to let go of some of that aged stuff because they'll see the math that says it's starting to cost us money. And I think there are some soft costs about this. So this is where I would say, The soft costs are real costs, folks. We don't measure them. We don't have it on our DMS in terms of the cost of the unit, but it's a very real cost to us. Our CPAs out there know this. We have a very soft cost associated with that car sitting there, but it's real to us. And opportunity cost is real to us. The opportunity that we're missing, by not having a fresh unit that would sell because we've got an aged unit that's getting passed over and we can get real bogged down in the analysis of why this car sold and this one didn't but we certainly need to be mindful of what is selling we go back and look but if if we've got if we look at the cars that turned over in thirty days pick thirty days a lot of stuff will turn from the time that it hits the lot in thirty days. So we look at that and figure out what is that? What is that makeup? What is the composition or the kind of the profile of the car that is selling? And and then the other soft cost that I just want to make sure we talk about is just team morale. Like when you think about the sales team showing up every day and having an aged inventory, That's going to hit their psyche, you know, and whereas having fresh inventory hit the lot is going to give them a little bit of boost. But I've also heard dealers, it's like they're just whiny. Yeah. And they're just being, well, it's a real thing. And so you can have the attitude of buck up. Yeah. Or you can make it exciting for them too. Because they just, you know, they're like, I've been showing that car and you've heard it. And where the car has got dust, there's, we've seen cars with, weeds growing up around the tires because they aren't even moving. But yeah, yeah, it is, it is a morale thing. Very much so. Yeah. So another story kind of helped tie this together is I, I remember a dealer in Texas. We won't say who it is, but I remember a dealer in Texas who shared that they had a, a bell in the in the showroom area front door of their dealership and it's like the i don't know if it's long john silvers or somebody used to use a bell that ring the bell for good service on the way out the door well what they did was create a bell um that when The lot porter put a newly priced and scrubbed car on the lot for sale. They would come in and ring the bell like there's new inventory on the lot. Oh, that's really a great, fun, exciting idea. But why? What happens? What's the psyche? Who does it affect? It affects two people. At least people, at least the salesperson and the customer that's in it's like, oh, oh, can I see that car? So the question came up when they were describing this, the question came up, but don't you have customers who are in the middle of contracting on a car, want to stop and go look at the other one that's coming in? Maybe. But I would take that problem over the other problems every day, because I think what you're doing is you're you're emphasizing to your team the freshness aspect and the people the team see it the management team the customer's going to know it and so even you know we talk about a customer's experience is broadcasted to all of their friends and family and so this level of excitement in a in a in a showroom you know you've got you might have collectors over here or whatever and have you know five to ten people but it's not gonna work as much if there's just a salesperson and then the porter drops off a car and rings the thing so it's just a salesperson but it you know if you've got if you've got a few people that that does create a level of excitement for a customer and it's just kind of like it was fun and and good energy and it was yeah energy is important like that's another intangible thing that is hard to hard to identify but um i i'm going to put a banner in here to alert people and i'll share it now that i would urge people to go search because it's kind of a related story here from Years ago, this was early on our podcasting days with the morning show. We did a podcast on the Lynn Hickey Dodge story. Yeah. Yeah. It's funny because when we did that, we had people from that family that, you know, watched or commented or whatever. Yeah. They reached out and kind of messaged us on YouTube or whatever, but yeah. Yeah, so I would urge people, and I'll put it in the comments so you can find it, and go look up that. You can go to our playlist or go to our YouTube channel. If you don't mind, Michelle, if you'll put up our YouTube channel. I think we have got that link there. But make sure people know how to, especially because we're going to be doing a lot more of our. Well, we're on YouTube, so you're watching that right now. Yeah, and so be sure and just subscribe. Michelle's going to put up our YouTube channel. Be sure and subscribe while you're here. And then when you're in there, you can search our playlist. We've got the whole morning show playlist in there. And you can find one called Lynn Hickey Dodge, which really talks about how that dealership functioned and how they managed to sell twenty two hundred cars in a single month. just back in the nineties. But the point is still that it's just as relevant today. The story about what that was in terms of a circus atmosphere was just the same. So I think what, you know, there's a lot of different angles here that you can take, but I think if we just keep it strictly to the inventory on the ground, and if we just developed a policy that allowed us to, we might suffer a little wholesale loss on the stuff that is going away. on the positive side that car is going to be in good shape it's coming right off a lot it's going to be in good running condition it should do better on the wholesale market but we still may suffer some wholesale hits But what we'll be able to show on Thursday is how quickly you recover that wholesale hit by putting fresh inventory back into the system and making fresh inventory available for the benefit of your sales team and your customers. You're going to see that the recovery on that wholesale loss just by creating a discipline policy. Discipline is the key word there. Just got to be willing to do it. I would really encourage dealers to, a lot of dealers have floor plans and things like that, that don't dig yourself so far in on your cost. that you feel like you have to sell it because you know, every day that it sits there aging, that car is costing you more and more. And so it is, it's, it is better for a lot of reasons to just keep it fresh, keep it fresh, keep it fresh. And, you know, you might take a little bit of a hit at the at the auction, but You know, it resets your your floor plan. You know, you pay that off and then you have the excitement. And there's just there's a lot of cascading effects from doing that. Sure. And there are a lot of compounding effects from not. Right. And that's one of that's some of the stuff we'll be talking about or you'll be talking about on Thursday. I'll be behind the board. Yeah. Yeah. I'm looking forward to that. But I think, yeah, this is this is part of what I wanted to have a chance to really talk through today was this idea of, you know, as we kind of move into our April meetings with our V.A. members, you know, we're recording this live on on the eleventh of April of twenty six. And so as we move into our April meetings and we're wrapping up Q one where we have We get to kind of analyze sales from the first quarter. And we'll look at that. We track a very simple inventory turn number in our V-A summary report. We don't talk about it a lot, but I will be breaking that down as we move into these April meetings. So I put the title up again. This event is happening next Thursday. Are this coming Thursday? And the tickets are being sold on Eventbrite. I just put the actual link to the Eventbrite thing in the thread that should be in the YouTube comments. So make sure you find those. In the past, we've had a little bit of an issue from our streaming platform getting those comments to land on the platforms. But hopefully you can find that there. But you can always just reach out to us or message me, Jim, at White Hat Way. And just a reminder that though the this event and all of our dealer workshop series um if you're a member of va plus that's part of your membership right so they received an email already today about it to you know put it on your calendar and then with that as well is that you get the recording if you aren't able to make it that you will have the recording sent to you right so sure yeah so you know i think we covered the parts that i would um would want to cover again i would just invite people to join us on thursday for that session we're going to really dig in deep on some of that and break down some of this math and hopefully be able to illustrate better for dealers why this this idea of drafting policy Speaking to it, turning that inventory through, it's going to translate into more sales, more profit per unit, and that's going to result in more trust properties that we can pick up for our staff. If you need any help with anything, don't hesitate to call or text. That's Jim's direct line. Call and text me. Yeah, call and text. And yeah, we're looking forward to seeing you all on Thursday at our event that we have the link posted as well. Thanks so much for joining. We appreciate. Happy to have you here on this Saturday. And I hope you guys have a great rest of your week. And I need to actually pull up a slide really quick. I think I'll just do this one right here. And we'll end up with that. All right, everybody. Have a great weekend. See ya.
